May 2011
Intermediate to advanced
640 pages
19h 11m
English
CHAPTER 11
Insurable Value
The world of insurable value considers the value of a business or business interest to be covered by insurance.1 Business insurance is required in a variety of circumstances. In the insurable world, as in other valuation worlds, a business interest should be valued using a process specific to this world. By better understanding how value is determined in the world of insurance value, owners are better prepared to purchase insurance to protect their businesses. Although numerous instances require valuation for insurance purposes, this chapter focuses on three main reasons:
1. To fund buy/sell agreements
2. To determine the proper amount of key person insurance
3. To value a claim in business interruption cases
This world has dual authorities. Insurance companies determine value in many circumstances, such as business interruption claims. The involved parties also may authorize valuation actions, such as the formation of buy/sell agreements. This world employs its own lexicon of terms, including “provisions,” “triggers,” and “yardsticks.” Some terminology used in this world is similar to that of other value worlds. For example, many buy/sell agreements use market value terms to describe the valuation process. However, insurable value then deviates and employs a unique process to derive ultimate value. This world is mutually exclusive from the other value worlds because it must carve out processes specific to its goals. The value conclusions from this ...
